Tony's Ten: Economy, Regulation and the Euro Crisis
16 November, 2012Tony Gandy
Well, it is all too depressing to speak about the global economy. Indeed our very own chairman was sat on the stage when Bank of England Governor Mervyn King gave a very downbeat assessment of the economy – mind you the Old Lady of Threadneedle Street is meant to be a bit of a sourpuss.
So a joke about economists instead:
Q: Why did God create economists?
A: In order to make weather forecasters look good.
The hearings in Parliament of the Banking Standards Commission continue. It is tasked with considering professional standards and culture in banking and improving transparency and governance in the City. The Commission is to report its findings no later than 18 December, and we undoubtedly will keep a direct eye on it as it clearly hugely impacts the nature of standards of professionalism in the banking sector and that is a part of our business.
The Deutsche Bundesbank is worried. Well, who isn’t? Its main concerns in its latest Stability Report are the prospects of further deterioration in the sovereign debt situation (it does not conflate this with a banking crisis) and the impact of the temporary measures being put in place to put off the inevitable crunch in the Eurozone.
The inevitable, you say? Well, I don’t say it, the deputy head of the Bundesbank, Sabine Lautenschläger, says it: “monetary policy cannot eliminate the causes of the crisis; it can only buy time.” The problem for Germany domestically is that the liquidity being created by the rival central bank European Central Bank is flooding back to Germany and this, coupled with very low interest rates, is leading to unwarranted asset price growth as property prices go up. Banks and others are investing in property as a way of doing something with the cash washing around Germany. The Bundesbank does not like it.
Executive Board Member Dr Andreas Dombret, responsible for financial stability, said “the side-effects of short-term stabilisation measures could leave a difficult legacy for financial stability in the medium to long term.”
But not all is bad. The Bundesbank says that its banks are robust with more than adequate capital buffers and solid deposit-based funding.
However, German banks are also the source of many of the funds used in the ‘Shadow Banking’ system, because they are, and always have been, awash with cash which they find hard to invest in a traditional manner. The Bundesbank notes that German banking has invested €1.3 trillion of funding into securitised investments and other shadow products.